But the bigger problem is that there seems to be a huge disconnect between Time Warner Cable management and their customers. And that's not good. As Pali Research analyst Rich Greenfield writes in a blog post (registration required) today:

The most shocking part of Time Warner Cable’s sudden termination of its plans to roll-out broadband usage caps to several additional “test” markets, is that they appear taken completely by surprise, in terms of the public/government’s reaction to their new broadband strategy. In a socially-connected world of blogs, social networks, twittering, e-mail, etc… it’s truly hard to fathom that TWC management did not anticipate a harsh public outcry - particularly given the “low” levels of caps they sought to impose.

It's possible Time Warner is still going to try the significant change in business model again later this year, once it has time to "educate" its (apparently ignorant?) customers, and roll out an invasive "gas gauge" that helps customers figure out how much Internet they're using, if they remember to pay attention to it. (That will certainly make watching YouTube more fun!)

But in the meantime, TWC is going to continue blaming its customers for not liking the idea of paying more money for the same service they're getting today. In a blog post yesterday, Time Warner Cable CEO Glenn Britt highlighted "misunderstanding" about its plans, and continued to insist that charging people more for their Internet service is "the best pricing plan" for consumers. What part of "your bill is going up" are most people misunderstanding?

We understand why Time Warner Cable wants to raise prices: Web video will eventually threaten its legacy cable business, and if TWC can provide an economic incentive to watch more cable TV -- and an economic disincentive to watch Hulu, iTunes, or Netflix -- that's good for Time Warner. Heck, we're in favor of TWC trying to change its strategy and make more money, if it can do it right. That's capitalism.

But trying to play this off as "the best pricing plan" for consumers -- many of whom, especially the most tech-savvy, will have to pay more for Internet service -- is silly, and just bad business. So it's smart that TWC has backed off for now until it can figure out a better message.

Time Warner Cable and other ISPs -- including Time Warner's AOL (TWX) -- made the decision to sell all-you-can-eat Internet service a decade ago because it was an easy, effective way to boost subscribership. They are now stuck with that model until they can figure out an effective, convincing way to market a different business model. This is not it. (A $5/month, across-the-board price hike might even be an easier starting place, and could generate $500 million a year in more revenue. Comcast's model of capping subscribers at 250 GB a month is also more reasonable and friendly.)

The more that cable companies misunderstand their consumers and try forcing their hand into unfriendly, convoluted service models, the more people are going to hate their cable companies. And with competition increasing, Time Warner Cable can't afford to be hated.

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Why People Hate Cable Companies

The more that cable companies try forcing their customers into unfriendly, convoluted service models -- like metered Internet billing -- the more people are going to hate them. With competition increasing, Time Warner Cable can't afford that.